What differentiates the current economic malaise from recessions past, in my opinion, is the lack of an obvious exit strategy. People who know a lot more about economics than I do have suggested that our situation is uncomfortably similar to Japan's real estate bubble in the early 1990s – the one that initiated a fifteen year recession from which the nation never quite emerged. Policymakers seem ill-prepared to address the fact that we may be entering a lengthy period in an economic trough as opposed to a sharp but brief recession from which we'll emerge Better and Stronger than before, as was the case with the early 1990s recession in the U.S.
What is the exit strategy? Sure, real estate prices will probably bounce back at some point (although not to the ridiculous levels of the previous decade) and the financial sector will stabilize. But what is the big growth industry that will fuel our economic recovery? It is beginning to feel realistic rather than pointlessly alarmist to suggest that instead of a "recession" we are actually seeing a downshifting of our equilibrium level of prosperity. Policymakers are beginning to recognize the elephant in the room – the possibility that we might not get back to our previous standard of living. Not this year, and maybe never. Like Americans in the 1970s had to face the fact that the good times of the 1950s were gone for good, today we have to wonder if even the unequally distributed "good times" of the 1990s are better than we can ever hope to see again.
Michigan leads the nation with an official unemployment rate of 14.7% – and a real-world rate that might be twice that. Among other factors, the collapse of the domestic auto industry has hit the state hard. I feel for the state's elected officials. Honestly, what in the hell are they supposed to do? Michigan hasn't stumbled into some sort of temporary economic torpor. It is, for all intents and purposes, dying. The auto industry is never coming back; any growth the "domestic" automakers experience in the future will be driven by production in low-wage countries or, if domestic, low-wage southern states. Michigan has no natural resources that can sustain it the way Texans rely on oil money in hard times. It has no other industry of note. It has a poorly-educated population that most potential employers would avoid at all costs. There is nothing in the state to fuel a recovery and nothing for it to do but sit back and watch its population fall year after depressing year.
Their options are few. Unlike economic sinkholes in the south, Michigan can't even sell itself as a tourist/retiree destination. "Visit Flint" and "Come to Kalamazoo, where it snows so much you'll wish you were fucking dead" don't strike me as winning ad campaigns. Instead they'll probably go the route of Ohio in the Rust Belt eighties – deluding themselves into thinking that they can lure a bunch of "high tech" industry to the state's abandoned cities. As Ohio found out, there are 49 other states with the exact same plan competing for the exact same employers. And since everyone's offering the same deal – tax breaks, free land, eager workforce, etc etc – it's hard to see how Michigan can compete.
I don't mean to pick on our friends in Michigan, and certainly many other states in the Northeast and upper Midwest face the same dilemma. It is a microcosm of our national dilemma – what exactly are we good at anymore? Now that businesses are confronted with such strong incentives to ship jobs overseas, we've created an economic void that hasn't been filled. And we don't even have a half-decent idea of how to start filling it. Without some sort of speculative bubble, be it dot-com stocks or housing prices, to create the illusion of prosperity we as a nation are going to confront the same dilemma with which a few states like Michigan are already faced. The economy we had is gone, maybe forever. And no one appears to have the faintest idea how to replace it. The Clinton-era balm of re-training and educating workers in some vague and unspecified way for some vague and unspecified jobs has been exposed as a fraud. Now we don't even have a half-decent lie to peddle.